PHIL BILLINGHAM How to Survive and Thrive in a Regulated Environment – what can we learn from the UK experience

2 What are we going to cover? Where are we now? –What’s going on in the world How are other Planners dealing with Change? –Strategies and tactics to survive and thrive What Regulatory changes are we seeing in the UK? –How are these affecting the marketplace there?

3 Consumerism and Globalization Higher expectations of Products and Services The ability to purchase from anywhere – the rise of the internet The democratisation of information – again via the internet…. ….but Information is neither Knowledge nor Wisdom The initial bypassing of traditional intermediaries in the distribution chain – but this is changing

4 What does the consumer value? 1.Our Advice and their relationship with us a lot 2.Ongoing Service if it’s appropriate 3.Transactions and Implementation not really

5 How do (did?) we get paid? 1.Transactions mostly 2.Service a little bit, sometimes 3.Advice historically not at all

6 The answer – move to being paid for advice and planning! Some reluctance to change by existing clients – and Advisers Setting and justifying fee levels can be tricky Initially, cash flow can be a concern There is usually a move away from certain client groups - a general move ‘up market’ This has serious social exclusion implications

7 How do we survive? Don’t be driven along, looking over your shoulder at the good old days – Embrace change – it’s here to stay Design a business that is fit for purpose There are 4 main areas to look at –Business planning –The Client Management process –Your Investment Philosophy and process –Delivering the Advice and ongoing services

8 Business planning Business strategies: Future plans and ambitions Exit or Succession strategies Risk Management processes – Note that FAIS Compliance is only a part of this Management Structures Marketing strategy If you don’t have at least the outline of an answer in these areas, you are going to struggle.

9 Client Management Client Profile –can you describe them? Client Proposition –what will you do for them? Client communication –How and when? Client Segmentation –more than just numbers?

10 Client Segmentation RELATIONSHIPRELATIONSHIP CA DB Profitability

11 Investment Philosophy What is your style and approach? –Fund picker or Asset allocation –Ethical / Green / Targeted? –Active v Passive Is this consistent across the firm? How is it communicated to clients? How do you do ‘Due Diligence’ on products and funds? Does your ‘Risk Profiling’ process match the other parts of the system – including CRM?

12 Delivering Advice and service What is your chosen system? –Transaction or Advice led? –Advisory or Discretionary? How are you going to monitor and quality control the advice process? Do you and your staff have the knowledge and skills you need? –How do you know that? Does the client review process work? –How do you know?

13 Useful test questions If you were to sell your firm today, can you answer the following questions? How many active clients do you have? What is their average yield? What funds under management do you have? What is your recurring income? What is your profitability per client? Are the clients attached to the Practice, or to the Adviser? If the answer is No or Not Sure to any of these questions, then you have some work to do!

14 How do we thrive? Use technology. Be High Tech – High Touch. The power of the Financial Planning Process is a massive advantage to your clients and you - if you use it. Decide which business you are in – and promote that specialisation – how do clients describe you? If you are a ‘Planner’, think about your relationship with Product Providers – this can affect your brand Align with the other professionals – strategic alliances and Joint Ventures

15 How do we thrive? Get ahead of current regulations –Understand the Regulators / consumers concerns and future actions and position your business to answer them Branding becomes very important –Not logos and fancy paper! –Who you are – your culture and values –In the UK, we have seen the rise and rise of the Independent Market. This is because consumers have learnt to value ‘Independence’ as a ‘Brand’ Learn from other professionals as well –the power of numbers can work for you

16 The classic Distribution Path Wholesale – Funds and Reinsurance Retail – Life Assurance Companies Advisers and Brokers Real Clients

17 The classic Distribution Path Wholesale – Funds and Reinsurance Retail – Life Assurance Companies Advisers and Brokers Real Clients Direct Sales and Direct Offer

18 The new Distribution Path Wholesale – Funds and Reinsurance Retail – Life Assurance Companies Advisers and Brokers Real Clients Wraps and Technology

19 Current UK Regulatory activity Treating Clients Fairly - TCF Principle based Outcome based Trying to avoid ‘Compliant but C**p’ transactions ‘Risk Based’ approach Based on Impact and Probability Best practice is to use an internal risk based approach South Africa is starting to adopt this approach

20 Regulatory Risk and Actions IMPACTIMPACT Monitoring and Prudential reporting Enforcement / Shut down Acceptable – let the market lead Point of Sale rules and guidance – FAIS Act PROBABILITY

21 What are the main changes - in the UK and South Africa? Higher disclosure levels –commissions and status Introduction of Point Of Sale rules –Client communication Higher levels of Qualifications –Especially Continuing Education Reduction in the numbers of Advisers –especially in the Tied Sector.

22 Lessons from the UK Experience 1.Regulation is here to stay 2.Consumerism is a key driver to increased regulation 3.Successful firms are successful because they control their model and brand 4.The ‘Financial Planner’ Model has increased capital value

23 Outstanding Issues - worldwide Planner and Product provider relationships –Conflicts of interest –Fiduciary duty Cross border transactions and regulation –The power of technology and the Internet Public Perception and ’Branding’ of Advice –‘Toxic’ Products

24 Summary It is possible for Financial Planners to Survive and Thrive in a regulated environment if: You are future focused You understand the Regulators agenda and approach and adapt to it You embrace Best Practice and Business Management techniques and processes You actually plan to survive and thrive

25 Thank you Phil Billingham ACII CFP Chartered Financial Planner Perception Support Ltd